Free drugs are here! What will this mean for you?

The Publix supermarket chain announced yesterday that it will offer the seven most commonly prescribed oral antibiotics free, in order to draw new customers. And, they will not even limit the number of prescriptions a customer may fill without cost.

With this move, Publix is squarely focusing on Wal-Mart and Target. Both companies recently started offering several hundred drugs at only $4 per prescription.

This is an example of how industries outside of the traditional healthcare area can fundamentally impact the viability of the drug industry, and if we look into the future, this is a first glimpse of how the healthcare market will change.

IMS Health, an industry research firm, estimates that prescription drugs worth $121.5 billion will come off patent between 2006 and 2011. That's half of U.S. drug sales. Unfortunately, drug company pipelines are – with a few exceptions – dry, when it comes to new blockbuster drugs.

So not only will the drug industry have fewer big ticket items to sell, they are also getting squeezed by promotional practices at big box retailers.

In fact, we’re about to enter a decade when drugs become commodities.

Wal-Mart claims that 4 of the top 20 prescribed medications in the United States are available for $4 (according to RxList, an Internet drug index). And already today, generics account for 51% of the drug market, however, they represent only 8% of every dollar spent on prescription drugs, according to IMS Health. As the percentage of generics increases, drug makers will be forced to continue to consolidate to maintain profitability.

And when drug companies lose patents their drugs will be offered not just cheaply, or below cost, but free of charge to lure shoppers.

This will impact everyone working in the healthcare sector, reducing job opportunities in the research based drug industry, while freeing up spending on other healthcare areas - or so one might think.

Reality is that the aging of the population in the U.S. will result in the number of elderly people who need drugs and medical care will explode. As a result of this, healthcare costs will also explode and we’ll be lucky if we can simply keep pace with our current level of care.

And those drug companies that still have patented big sellers can continue to please shareholders, selling to this rapidly increasing group of elderly patients, while picking up the laggards with poor pipelines at bargain prices.

End result: Three or four drug companies will emerge victorious as the others perish.

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Comments

[Prescription Access Litigation]

I think it's unlikely that a trend to offering free drugs will emerge - note that Publix's move applies to a small group of generic antibiotics, most of which most likely cost Publix pennies per Rx. That doubtless will eventually be true of many of the drugs going off patent in the coming years.

What is more disturbing about Publix's move is that they've chosen to offer free antibiotics. Strange choice, indeed.

We comment on this strange choice, and more, today on the PAL Blog - the comments here don't permit links, so cut & paste to read it: prescriptionaccess.org/blog/?p=60

[Adam J. Fein]

I agree -- your scenario is unlikely b/c generic drugs now subsidize the distribution of branded drugs. All the major players in drug channels – PBMs, wholesalers, and retailers – generate higher profit margins and more profit dollars per script from generics. (Loads of data on my blog to support this assertion.)

This system could change, but probably won't in the next five years. No reason that pharmacies will completely kill their golden goose.

Instead, think of discount/free generics are a competitive weapon for mass merchants and supermarkets who generate a minority of revenue from pharmacy. These programs drive incremental traffic into the stores. In December, I walked through the math for Wal-Mart, which has a seriously underutilized pharmacy department. Here's the link to cut-and-paste:

www.drugchannels.net/2006/12/sloppy-reporting-about-wal-mart.html

In contrast, Walgreen and CVS get ~70% of their retail revenue from prescriptions. The chains compete on convenience and service with 95%+ third-party pay customers. They are not very vulnerable to these programs because customers with third-party insurance do not save much versus standard co-pays.

That said, you are correct that Big Pharma as a Big Problem, at least when it comes to oral solids. Hence the enthusiasm for high-priced, no-generic-pathway biologicals…